Ann: Chairmans Letter , page-5

Forward Plan

The life cycle of a petroleum project passes though a number of stages - idea, details of opportunity, successful drilling and so forth, leading ultimately in the success case to a development plan to realise full value through production. Full development can take several years, so the key question for Texon is to find the appropriate value versus capital investment monetization point, bearing in mind risks, rewards and downside. For a company of Texons size and entrepreneurial opportunities, at some point earlier than full development, the incremental value per unit of investment will peak.

Our Leighton Olmos holding is probably now largely a development project and we expect there to be diminishing value uplift per future well compared with the past. The Company is considering whether it would get better upside from the value of its Leighton Olmos by re-leveraging that value into the Eagle Ford or other project.

Our Eagle Ford project will also be approaching such a consideration after weve successfully tested the fourth or perhaps the fifth well. After four or five successful Eagle Ford wells the Company will have significant value in its Eagle Ford holdings. Having established this position we will assess whether the point has been reached where the value of our Eagle Ford has been optimised for the Company.
Over the coming weeks, we will keep you informed as to progress and outcomes on all of these projects with particular emphasis on Reserves, Leighton Olmos, Eagle Ford, variations to the Texon-Wandoo Agreement and a reinvigorated prospect generation programme.


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The Companys two producing Eagle Ford wells in its leases in McMullen County have been on-stream for eight and four months respectively. Oil production from both is well above the average oil rate for all McMullen County Eagle Ford wells. Production from Texons Eagle Ford wells is 80% oil compared with a 40% average for all McMullen Eagle Ford wells


interesting days ahead!!